Tell us what YOU think about this.

Can't really disagree with many of the general statements made in the article.

I do think equities have a role to play in private pension provision and should not be dismissed in my view - individuals should take a more active strategy in locking in gains and switching between investment classes as conditions dictate.

You can answer question 2 for investors that have taken out deals with PS in the past - all of your developments and apartments are of an excellent quality, otherwise the deals would not have been completed in the first place, right?


Regards
Sanj

I think the is very poor advice and here again is a property pundit blindly pumping the asset class contributing to the pyramid scheme nature and resulting boom / bust cycle of prices. Nice one.

Why do I feel so strongly about your article? Writing off all other asset classes and insinuating that property is one of the few investments you need in your portfolio is nothing other than gross negligence. If you feel inclined to disseminate financial advice (especially for a purpose as important as retirement), you should familiarise yourself with one of the basic investment fundamentals, diversification This doesn't just mean investing your money in a variety of properties, but removing the blinkers and investing in a variety of asset classes.

Donning your retro-spectacles and writing off equities is insane. Yes, equities are riskier than property (but note equity investments are often not geared, unlike those in property, thereby levelling the playing field somewhat) and cash deposits less risky, but combining these and other 'ingredients' in your portfolio can reduce overall risk, especially compared to dumping all your money in one asset class. Who knows where equities will be, both outright and relative to property, in 10 years time. Both asset classes have taken a huge beating lately and I suspect both will do OK over the medium term. If investors applied your advice 'the lesson from the 2008 crash is not that you can't trust property - but that you can't trust stock markets and financial instruments' to the property market in the 1990's they would be well and truly out of pocket.

If you feel property is cheap versus other asset classes, which is what I assume your article is all about, why don't you argue your case on some kind of valuation basis? You could consider yields of the different asset classes and make comparisons, either outright or look at how and when these different asset classes react in recessions. I suspect you will find that equity prices recover earlier so this won't suit your story.

Finally, I disagree on your point it is better to hold investments closely and in large stakes. While the financial crisis has taught us all that there needs to be a closer understanding and scrutiny between investor and asset, I think this relationship shouldn't extend as far as you are suggesting. Such a 'close' investment requires a lot of investor attention / monitoring and creates a higher emotional attachment, potentially making selling decisions difficult. Employing professionals (such as yourselves for selecting individual properties) removes some of the emotional component as well as tapping into more detailed expertise than an individual can expect to possess. While again this may not chime with your article, this applies to equities as well.

Furthermore, if an individual suspects the fees required for arms length management are unwarranted, most asset classes have the option of 'tracker' or 'index' products which have low fees and aim to mimic the asset class as a whole. Unfortunately, the property market has not developed to this extent, so property investments require either a lot of investor time or heavy fees.

If you want to retire comfortably, save, save, save and invest in a variety of assets. Avoid the sales drumbeat of persons and institutions that motivate you to over-extend yourself and 'pile in' to their asset class. The biggest winner will be the marketing individuals / organisations themselves.

Hi George - I'm not sure you've read my article properly - sometimes, where you claim to disagree with me, you don't!

re: The Stock Market is not for pensions - that is an idea that has come from Nassim Taleb of The Black Swan and Fooled by randomness - he wrote that in the FT about 3 weeks ago - he made money out of predicting this credit mess we're in.

here is the link to his book http: / /www .ft .com /cms /s /0 /5d5aa24e -23a4 -11de -996a -00144feabdc0 .html

This is what he says on point 9 out of 10

I'm sure you will know this guy - as his books have won lots of awards - as well as really annoying lots of people in the industry!

re: diversification - there are a number professional equity and city trader people who will tell you that diversification is a recipe for disaster. You are welcome to disagree - but you'll be disagreeing with them too - suggest you read the book Nudge and what it says about how we (foolishly) diversify and especially how we allocate asset classes for our pensions - it is very sad reading.

It was George Soros who said - in The Crash of 2008 - that the major breakdown in the market was that the repackaged mortgage commitments were too complex for the investors to understand as they were too distant from the actual source of the collateral.

His advice for regulators is to not allow the asset and the investor to become seperated. I am taking up that idea and following through - that's all.

Note: in my article I say that property is a low growth option AND I recommend putting money into businesses where you have a large stake and a large amount of contol. You will of course, own those business with an equity stake - using shares - on this we do not disagree as you seem to think we do.

I am not recommending a pyramid scheme or anything of the sort - and it suggests you've failed to read the article if you think I am.

You believe that you are very good at spotting self serving motivation on my part. I find that offense and believe you are absolutely wrong.

The one industry which I do critise in the article is the collective investment / fund industry. I am not suggesting, as you do, that these are pyramid schemes - but I am saying that collective investments give disappointing to very poor returns for the reasons I have set out above.

You are welcome to disagree with me - but please do so with intelligent debate and not pyramid scheme insults or a dubious attempt to question my motivations.

Thank you

George - I've just had a look at your email address and it appears that you work for an Asset Management company.

The remarkable thing about property is that - especially in the case of the UK, Ireland and Spain - it hasn't fallen all that far - perhaps 20%, perhaps 28% in mainland Spain - but not 40%. (Yes, holiday properties don't count in this analysis - they can fall in value without limit).

Why? Stock markets tumbled 50 to 60% - the problem was banks, lending and property - bank stocks fell 90%+ - so how come actual physical assets escaped with a 20% odd decline?


A lot of property pundits in the UK are now calling property the 'safe' asset due to the fact that it has fallen far less in the current financial tsunami than other assets in particular stocks.

This analysis does however not tell the true story. Property is not a safer assets because it has fallen far less 'to date'. Property falls are always behind the curve due to the illequid nature of the asset. People can't just bail out of property and cause the price to crash quickly.

Whilst shares have fallen far further in percentage terms the recovery of the stock market will be far quicker.

I like to consider emperical evidence of what has happened before in making a judgement of future asset price growth. Likewise the current 'value' of both shares and property needs to be considered.

On the first point read the following report to determine how long property takes to recover from a financial crisis -

http: / /www .economics .harvard .edu /files /faculty /51 _Aftermath .pdf

property takes many many years to recover from a banking crisis. Although it falls on average only half that of equities, the length of decline is far greater.

Secondly, the 'fundamentals' of shares against their long term averages are far greater at present than property in the UK.

Price to earnings are reasonable, yield is high. The exact opposite of UK property.

Every asset boom leads to a bust that just does not recover for decades.

The 70's commodity boom lead to a 20 year secular bust.

The 80s' - 90's stock market boom lead to a bust in 2000. We are still in this bear market and most likely have another 5 years to see out.

The mid 90's - 2008 property boom has now bust. I cannot see how this is going to suddenly recover. 'Real' property values adjusted for inflation will most likely go nowhere for the next decade at least.

So where will the next boom come from? My guess precious metals, agricultural and other commodities. The only asset still undervalued and who's fundanetals have improved ten fold since the start of the current crisis (try getting a loan to build a mine and increase supply)...

Once this commodity bubble bursts in the next 5-15 years we will likely be back to a stock market boom and after that maybe property will be back in fashion...

And another huge risk associated with property is the phrase:

'you make when you buy not when you sell'.

Get the purchase price wrong in a falling market like the UK and you will suffer for years. Hence why BMV is a load of bull.

What does 20% BMV mean when prices are 40% overvalued in terms of current yield against the historical, or worse against the historical level that yields bottom at???

Most people buy shares on a regular basis, thus averaging down any falls in the value of shares. A large reason why property is not the risk free asset it is claimed.

Buy a property at the wrong price in a falling market (a la UK in 2009) and you will be stuck for many years at a loss. Even a capital repayment mortgage takes the best part of the first 10 years paying off little but interest. Add in the leverage and you can nurse large losses in falling property markets.

Initial purchase price is everything in property, not to the same extent with the way most people buy stocks on a monthly basis.

Plus the average return from the stock market is far higher than property over the long term. Stocks probably return 3-6% above inflation over the long term. Property around 2-3% above inflation.

Hi Tom - you make a good argument for commodities - and I agree the fact that property has not fallen so far does not mean it is a great investment - hence the BMV rubbish we see - and you need to do better than that and even then, expect a low growth investment.

Still - commodities - how do you invest for a pension? You don't actualy want to buy and store the commodity, do you?

So, then you are restricted to funds and collective investments or speculating on shares?

Is there a way to gain direct ownership - other than by buying a farm - which might be a good idea anyway?

commodities are indeed interesting. no need to buy shares or fill your loft with soya beans. you can invest in an ETF that trackes particular commodity prices, or an average of all of them, with minimal charges.

i agree that at least some commodities are due a boom, especially in what is likely to be an inflationary world. this means that property in commodity rich areas is one property segment that may thrive. i recall suggesting just this to PS two years ago. of course my timing was appaling (that 2007 condo in canada's oil sands region isn't something i'd like to hold right now), but watch that space.

I’ve re-read your article and I still come to the same conclusion that it contains poor advice. I struggle to believe you (or anyone with an investment background) can really embrace the advice given and so I question your motivation.
Some of the criticisms I have (incl others I’ve since picked up) is the article

1. Doesn’t make fair comparisons (stocks with asset prices, explained below)
2. Flippantly disregards other asset classes (heavily reducing an investors ability to diversify)
3. Draws conclusions on many asset classes with no regard to present (or any) valuations
4. Casually suggests investing large stakes in businesses with no caveats (i.e. skill, knowledge, time etc)
5. Suggests property is a good store of value without explaining why

The whole thing appears to be based on limited research. There are fleeting references to George Soros and other investment professionals /comentators to draw stretched conclusions (i.e. suggesting investors hold large stakes in companies based on Soros’s observation money shouldn’t be placed in complex structures by people who don’t understand them) and the article ensures the fundamental investment rules of diversification is made redundant by limiting the available number of asset classes. Also, there is no actual analysis of which asset classes have any value at the moment. Once most other asset classes are emotively written off:

- Equities “you can't trust stock markets”, “the stock market is not a place into which wise people will put their retirement money”, “It is time to stop expecting the stock market to get us through our retirement, it won't”,
- Gold “the gold gamble is not right for your pension”
- Bank Deposits “offer you next to nothing” mixed with “unless we experience sovereign defaults”
- Bonds “… Government bonds - but Government finances will be weak for years to come and offer little or no return” (though I note the article does see fit for “some savings” exposure here),

we are left with the investment options of either large stakes in companies , property and a faint amount of bonds . Given the intimate skill, knowledge and time required to identify and structure successful ownership in a company is likely to intimidate most readers (it certainly does for me), we are then left with property.

The article doesn’t give much / any rationale why property constitutes a good investment. There is a list of things it isn’t (i.e. a nationalised bank or a defaulted sovereign) then a suggestion property is a good store of wealth in the “current environment” (btw investors should be looking to the future environment and positioning themselves on their outlook). Well, property has fallen 20% and there is feasibly more to come. Falls or rises aside, the outlook is far from certain and if you believe storage of wealth to be key at present then those bank deposits and government bonds all of a suddenly become a lot more important (lets say…. in a diversified portfolio!).

The bottom line is I can’t see any research you’ve done, many arguments appear flawed / stretched / someone elses / fly in the face of conventional investment wisdom then a vague plug for property appears as it’s “a good store of wealth” and it isn’t a whole lot of evil other things.

What am I supposed to conclude about the purpose of this article?
.............................

An expansion of the comparison criticism mentioned above:
1. You compare stock price movements (-60%) to asset price movements (-20%). The former is part of a (usually geared) capital structure and the latter is an asset price. If you consider an investment in an asset price is geared (lets say 30% equity, 70% mortgage in the case of a 100k property investment), then a 20% fall in the asset price (i.e. – 20k) leads to the equity being worth 10%/10k, a fall of 66%! If the gearing is 20/80, then you’ve lost all your money and, in the case of some of these 10/90 buy 2 let mortgages, you’re underwater and facing bankruptcy if you’re forced to sell. Conclusion, a comparison between stocks and property price moves does not illustrate the profit or loss if you’ve borrowed money.